Our elected representatives continue the slow creep of increased taxation. The overall amount the government exacts from the citizens of America is far more than King George III did from the colonists. But, hey, we asked for it this time. Prior to this summer, Delaware law already levied an 8% tax for staying in a hotel or motel. Title 30, Chapter 61, of the Delaware code includes the following:
(a) There is imposed and assessed an excise tax at the rate of 8% of the rent upon every occupancy of a room or rooms in a hotel, motel or tourist home within this State.
(b) The proceeds of this tax shall be distributed as follows: 5% to the State General Fund, 1% to the Beach Preservation Program of the Department of Natural Resources and Environmental Control of the State, 1% annually shall be designated in the proportion in which collected, to the duly established convention and visitors bureau in each county and 1% to the Delaware Tourism Office.
In addition to this, state legislation recently gave Kent and Sussex counties the approval to enact a lodging tax of up to 3% on top of the statewide 8% tax. Last month, the representative in my district (31), Sean Lynn, sponsored a bill to amend “the Charter of the City of Dover to give the City Council the authority to impose and collect a lodging tax.” The bill was passed unanimously by the Senate (21 Yes, 0 No). Out of 41 votes in the House, only Representative Richard Collins voted no. When I contacted Collins and asked him about the bill, he responded:
“The whole thing was suspicious. There may have been genuine corruption involved. I’m still checking it out.”
The text of the bill explicitly notes that the Council may collect a lodging tax of up to 3% “in addition to the amount imposed by the State, for the occupancy of any room in a hotel, motel, or tourist home.”
Unfortunately, it is evident that the state magistrates believe a fundamental part of their job is to collect income in order to fund government expansion, public education, etc. The role of the magistrate, however, is to punish evildoers (1 Peter 2:14). While our magistrates have proven inept at that (case in point: abortion), they excel at taxation. The lodging tax is another example of the government interfering with the free market via taxation. A basic understanding of economics show us that a lodging tax is going to (1) negatively affect business owners in the lodging industry, (2) discourage new business owners from entering the lodging industry, and (3) discourage travelers from staying in hotels.
The tax will hurt the business owners who run hotels and motels as demand for their services will go down as the cost of staying in a hotel is now artificially increased due to government involvement. Whether the consumer or the business is taxed, the price of goods and services will be raised. This makes it more expensive for people to rent hotel rooms and means less business for hotel owners. As such, entrepreneurs considering entering the lodging industry (or any industry the state decides to tax) will have to consider the potential additional cost of an 8%-11% tax, in addition to any other government fees and costs. Another barrier to entry, created by the government.
Furthermore, travelers now have to pay more money to stay in a hotel, motel, or other tourist home. Understanding how supply and demand works, we know that an increase in price leads to less demand. Therefore, less people will want to stay in hotels. The elasticity of demand for hotels may be debated, but any increase in price will lead to a change in demand.
When will our legislators stop trying to gain “revenue” for the state? We need less government, not more. If we want to produce more wealth as a state, the solution is not to tax businesses and hope the government will use the money efficiently. (How’s that been working out?) A better option is to stop adding new taxes and allow businesses to continue to create jobs and add wealth to our state.